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Pakistan could be a formidable economic power in the not-too-distant future.

We live in a fascinating era. We have the privilege of witnessing fundamental changes in the world order which few would have dreamed possible a mere five years ago. In addition to altering basic relations among nations and the manner in which they interact with one another, the post-cold war era has brought with it enormous implications in the economic sphere as well. As ideological differences, which once ruled supreme, are being cast aside, a new world economic order is emerging and nations are becoming more economically interdependent. The old rules no longer apply, but the new rules have not yet been fully formulated.

What is clear, however, is that we are on the way to becoming a truly global economy. Part of this process is due, or course, to technological advances which now permit instantaneous communication between remote parts of our planet. Whereas the sun never used to set on the British Empire, it now never sets on the newly emerging financial centers of Tokyo, London, and New York. Markets around the globe are linked electronically, and time differences ensure that the financial world never sleeps.

But in addition to these remarkable technological advances, there has also been a fundamental shift in attitude. We are now becoming accustomed to thinking in terms of a world economy and the issues facing that world economy as we move toward the 21st century. Nations are coming together to focus their efforts to provide our children with a healthy world economy which will assure them sustainable economic growth and a climate conducive to enhanced trade and investment.

In the United States, President Clinton's highest priority during his initial 100 days in office has been to work on stimulating an economic renewal at home. With the collapse of the former Soviet Union, the US has been called upon to play a unique leadership role in world affairs. We cannot, however, continue to play this leading role unless we first revive our own flagging economy and enhance our competitiveness in the world market. As the US delegate told the 49th session of the Economic and Social Commission for Asia and the Pacific in Bangkok recently, "A prosperous and confident America is the best guarantor for an open multilateral trading system and a stable world economic and political order."

Americans made known their preoccupation with the health of our economy during last November's Presidential election. Americans realize we have been asked to take on a leadership role in world affairs, but worry when they see their standard of living falling and their products becoming less competitive in the world market. The President's strategy, therefore, is to get our own economic house in order in the hope that sound economic growth in the US will, in turn, radiate outward and stimulate markets elsewhere.

This does not mean, however, that the United States is becoming isolationist and protectionist. The reality is quite the contrary. The Clinton Administration is developing a comprehensive trade policy to deal with economic challenges abroad. The President himself has said that "We will compete, not retreat." He has also restated the US commitment to an early and successful completion of the GATT Uruguay Round, which has dragged on far too long - almost seven years. The GATT, which was born in the wake of the economic chaos following World War-II, has provided for unprecedented expansion of world trade. But the GATT system, in its present form, is outdated and ill-equipped to meet the needs of the world trading community as the new century dawns. All participants must work together, therefore, to update and renew the GATT.

I would also like to say a few words about the emergence of economic and trade reform on a regional level. This is a phenomenon emerging in various parts of the world simultaneously in response to the challenges of the new world economic order. In this part of the world, Pakistan and its neighbours have joined together to form the South Asian Association for Regional Cooperation. The SAARC just agreed to begin negotiations on lowering trade barriers in South Asia - a very positive sign, I might add. There is also, of course, the European Community, which is changing the way the countries of Europe do business amongst themselves. And in our part of the world we have NAFTA, the North American Free Trade Agreement between Canada, Mexico and the United States.

What all of these organizations have in common is an emphasis on regional cooperation and the elimination of regional barriers. This, I think, is in recognition of an increasing interdependence between the nations of the world. No one country can do it all alone.

Just as a few years ago there was consternation in my country about the implications for the United States of "EC-92", I know there has been much concern expressed by other countries about NAFTA. That concern has also been voiced here in Pakistan. Pakistani textile manufacturers held a seminar here in Karachi about two months go on NAFTA and the potential impact on Pakistan's textile exports to the US. Many countries, including Pakistan, seem to be afraid that NAFTA will raise new barriers to imports from countries outside the free trade area. In reality, however, NAFTA will merely lower barriers between the participating countries; the members of NAFTA have pledged not to raise barriers to the rest of the world. Each of the three members will retain its individual trade policies toward their other trading partners around the globe. The net effect will be to stimulate economic growth in the NAFTA countries, which, in turn, will mean expanded markets for goods and services from other parts of the world. We are negotiating NAFTA in strict accordance with GATT principles, and we feel that the agreement will both complement and extend the trade liberalization we are seeking on a larger scale in the Uruguay Round. We also encourage other regions of the world, including the nations of SAARC, to view NAFTA as a model for their own efforts to liberalize and expand international trade and investment.

As we move toward a truly economy, we are also witnessing a shift in traditional patterns of development assistance worldwide. Gone are the days of large transfers between the developed and developing world. Instead, we are seeing a tightening of official development assistance due to shrinking aid budgets worldwide and increasing demands for the limited amount of aid money. With the collapse of the former Soviet Union and the centrally planned economies of Eastern Europe, there are many more claimants on an increasingly smaller aid pie. The sift away from large-scale development assistance is also fueled by the realization that foreign aid by itself does not cause development, but merely serves as a catalyst to help the process along. The real engine of growth is private initiative, and the key to harnessing its power is to let market mechanisms function without a heavy government hand. There is growing recognition that aid resources must be used more efficiently by eliminating waste and duplication.

As we approach the 21st century, the world community is grappling with a variety of problems which confront that community as a whole. One of the many benefits of the post cold-war era is that countries, the United States included, are now able to devote fewer resources to defence spending and concentrate on other crucial areas which before had been relegated to a secondary position. A new commitment to improving the environment - long overdue - was underscored by last year's summit in Rio de Janeiro and the increasing attention being paid to environmental issues in other international fora. AIDS threatens all nations of the world, developed and developing alike, and is the major health crisis facing us today. Other health issues, such as containing population growth and improving infant mortality rates, are now commanding more of the attention they deserve. There is worldwide recognition that improving literacy rates is a key element on the road to alleviating poverty and fostering development. Labour conditions, including worker rights, child labour, and bonded labour, are coming under new scrutiny. The scourge of narcotics trafficking and the resultant diversion of scarce economic resources are also drawing attention.

It is not mere coincidence that many of these issues are at the top of Pakistan's agenda as well. Pakistan, too, has moved away from the statist development model it pursued in the past. Market-oriented reform has meant a reduction of state intervention in the Pakistani economy and the liberalization of the country's trade and investment regime. Pakistan has made a tremendous amount of progress over the past several years. A number of state-run industrial units which had been running in the red have been denationalized; several large state-owned banks have been privatised; the remaining nationalized banks are now healthier because they have been forced to compete with foreign banks and newly created private banks; administrative and financial barriers to trade and investment are coming down as the government tries to limit bureaucratic interference in economic decision-making.

The result has been a dramatic restructuring of Pakistan's economy. As the government has stepped back and assumed a less direct role in the economic life of the country, private enterprise has taken over. Instead of regulating every aspect of economic life in Pakistan, the government has adopted the approach that its role is to create conditions which will attract investment and encourage the international business community to take another look at opportunities here.

This approach is starting to pay off and the proof is in the fact that we are here today with this distinguished group of top-flight California-based producers of energy equipment. This is the first American trade mission to Pakistan in almost six years and they are excited about opportunities offered in Pakistan for small electrical power generation and cogeneration. The participants are here to take a first hand look at the situation in Pakistan. I am sure they will be impressed by what they see, and I believe this will be only the first of many such American business groups exploring opportunities in Pakistan.

But now is not the time for Pakistan to rest on its laurels. The country is at a crucial crossroads, and the present government, and its successor to be installed following the elections in mid-July, must ensure that the thrust toward reform continues. Stability is one of the factors which drive investment decisions, so continuity of policy is essential. The current government, and whoever is elected to lead in July, must demonstrate that economic reform was not a passing fancy of past administrations, but that it is here to stay. Changes in political leadership must not be equated with changes in the basic direction of Pakistan's economic policy. By demonstrating its commitment to continued economic reform, the government of Pakistan will reassure potential investors and thus attract a larger share of international capital flows.

Much remains to be done on the economic reform front to improve the country's prospects over the long run. The potential is there: Pakistan has the resources, the skills, and the people it needs to confront the challenges of the next century. But it must demonstrate the political will to tackle those challenges. Large federal budget deficits crowd out investment, boost inflation and drive up public debt. 40 per cent of Pakistan's net federal revenues is consumed by debt service. Defence spending, which eats up nearly another 40 per cent, is far too high. The combination of these two is short changing critical programmes in health, education, and population, and causing Pakistan to slip further behind other countries at a similar stage of development. The narcotics trade siphons scarce resources away from economic development, tears at the social fabrics, contributes to problems in other countries, and blackens Pakistan's image abroad. Reports of child and bonded labour abuses also harm Pakistan's image, and could threaten markets for Pakistani exports to the United States. Literacy rates are woefully low, while infant mortality rates are unnecessarily high. At the current rate of increase of 3.1 per cent per year, Pakistan could be the third most populous country on the planet in less than 40 years. While the AIDS problem in Pakistan is still relatively minor, the experience of other countries in the region suggests the government should not be too complacent. Pakistan is also lagging behind in the area of environmental awareness.

While these problems will not be easy to solve, they are not insurmountable. Pakistan has made a good start by setting the economy on the right track. The market approach needs to be reinforced to achieve international competitiveness. If the current government, and its successors, stay the course, Pakistan could be a formidable economic power in the not-too-distant future.

I would like now to say a few words about the trade mission we are honouring tonight. The group is under the auspices of the California Energy Commission, and the US Mission to Pakistan. The trade mission is here to offer new US technologies in industrial power and cogeneration which can result in substantial energy cost savings for manufacturers, process industries, and commercial business whose monthly energy cost for fuel is one million rupees, and for customers of engineering companies who provide small power and cogeneration systems. Participating American companies include suppliers of piston and turbine engines, generator sets, heat recovery equipment, instrumentation and control equipment, packaging, system design, and management services. The companies are prepared to discuss equipment performance, purchase and delivery arrangements, financing, representation, and joint arrangements.

The trade mission, which is in Karachi will also travel to Lahore, Faisalabad and Islamabad. It will focus on the application/installation of small power generation and cogeneration technology in the agroindustrial, industrial, and large commercial sectors. The benefits include increased electric generation, potential reduction in the frequency and duration of load shedding, fuel savings, and increased profitability in the form of lower total energy costs to Pakistan and those companies that install small power generation and cogeneration.

I am confident the trade mission will be a success, from the perspective of the participating American companies, as well as from the Pakistani firms seeking the technology. Finally, I would like to extend a special thank you to the Karachi Chamber of Commerce and Industry for hosting this dinner and providing the opportunity for representatives of our two business communities, Pakistani and American, to work together to help provide a better future for Pakistan.
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Title Annotation:Industrial Pakistan-1993
Author:Monjo, John C.
Publication:Economic Review
Date:Jun 1, 1993
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